There have been a few issues in the mortgage news recently that can be grouped under the subject of the Financial Services Authority (FSA) ‘naming and shaming’. In mid-July, the Financial Services Consumer Panel (FSCP) published the results of a survey it had conducted in February 2006, looking at financial services advertising across all national and some regional newspapers (220 promotions in all).
The results showed very poor levels of compliance with FSA rules, with 79 per cent of general insurance and 47 per cent of mortgage promotions being non-compliant. Examples included failure to provide an APR in promotions aimed at non-status borrowers; failure to provide the correct risk warning; and failure to make prominent the disadvantages of a mortgage product. The FSCP’s legitimate concern is that, if these advertisements had come under the control of the advertising standards authority, those advertisers would have been named. However, because Financial Promotions are regulated by the FSA, firms publishing non-compliant promotions cannot be named unless their misconduct is subject to full enforcement action. The FSCP wants this situation reversed, as it considers that early naming of the culprits will promote higher levels of compliance.
Hot on the heels of this issue came the FSA’s factsheet entitled ‘Appointed representatives (ARs) – what to consider’, aimed specifically at small mortgage and general insurance firms that take on ARs. The factsheet revealed (among other interesting findings) that four out of the 12 networks that had been visited had voluntarily agreed not to recruit further ARs until they had put more satisfactory procedures in place. Examples of poor practice included not taking up evidence of previous competence; inadequate financial checks; failure to have correct Multiple Principal Agreements in place where required; and poor training and competence (T&C) systems. As with the Financial Promotions issue, the FSA does not name firms until they have reached the enforcement stage, so these networks will remain unidentified. Should the rules be changed so that these networks are named? On the one hand it’s clear that all four networks co-operated fully with the FSA and are no doubt bringing their AR recruitment and management systems up to the required level with all speed – so is it fair to damage their reputations at such an early stage? On the other hand, firms that have achieved full compliance have a right not to fall under suspicion, or have their own reputations damaged unfairly.
On this last point, we have also seen the FSA discipline a senior manager of a MGI firm for the first time by issuing a Statement of Misconduct against the chief executive of Essential Mortgages Limited, Steven Leslie Davis. The firm failed to pass on ASU premiums for at least 350 customers to the insurers, leaving the customers without any cover. In this case the firm is no longer trading, but it is a clear shot from the FSA across the bows of MGI firms that full enforcement – including naming and shaming – is in store for those that persist in non-compliant behaviour.
Covering the DMD
Q1: We are a medium-sized MGI broking firm with 46 competent advisers. We have become involved in what could be described at best as a mis-understanding with the executors acting for a former client, who are claiming we should have ‘acted within the Distance Marketing Directive’ in relation to some business conducted by the deceased who was a ‘officer’ of a local club. Can you confirm whom the Distance Marketing Directive covers please?
Bill answers: Not an easy one to answer briefly but I’ll do my best. The FSA rules state that the Distance Marketing Directive provides protections for ‘any natural person who, in distance contracts, is acting for purposes which are outside his trade, business or profession’. What this means is that a ‘retail customer’ is covered. A retail customer can be defined as a personal representative, (including executors) unless they are a solicitor acting in a professional capacity, for example. So a retail customer in this context is not likely to be a governing body of a club. I am assuming from your comments that it is not professional executors you are referring to, so I don’t think you would have needed to take account of the directive. However, this is said without knowing full details.
A principal problem
Q2: I am being chased for claw back commission on a GI case written just after GI-day, which has been lapsed for a legitimate reason. The problem is that my firm were ARs of one principal for general insurance and another for mortgages. A proper multiple principal agreement was in place. One principal has been taken over and my firm is now authorised for general insurance by another firm. The original firm are threatening all sorts if I don’t pay back the commission. The problem is worsened by the insured client now wanting to re-instate the policy lapsed. How do I best sort this out?
Bill answers: The first point to make is that the firm claiming the commission to be repaid is within its rights to do so. You have told them you want to reinstate the lapsed policy, which you can’t do, one simple reason being that you are no longer authorised to advise on non-investment general insurance with that firm. You need to set up the new policy under your new authorisation and pay the clawed back amount to the firm claiming it. No doubt you will have discussed this with the compliance functions of the firms involved. If not, you must, so all parties are clear as to what is happening should further questions arise. For example, the first firm may report you to the FSA, which could have serious implications for you and your new principal.
Something’s blogging me
Q3: Can a blog site be compliant, where the content is constantly changing?
Bill answers: In a word no, not without the content being approved by your compliance function first. I suspect this is almost impossible given the nature of most blog sites – they can be dangerous terrority.
